Originated from a grain-milling company in Finland, the 57-year-old Rasio Group developed a substantial export business which accounted for 39% of its sales by 1996. Its main products including margarine, pasta and other food products were manufactured, sold locally and exported. In 1995, a blockbuster product Benecol, cholesterol-lowering margarine, attracted the interest of food processors and supermarket groups throughout the world and fueled a surge of investor interest. Stanol ester is the active ingredient that provides the lower cholesterol benefit. There was huge marketing potential and profit opportunity for Raisio. However, its limited production capacity, limited supply of stanol ester, few facilities, limited experience outside Finland, different product formulation requirements, different marketing channels and complicated regulations in different countries challenged its further strategy.
2. Analysis and assessment of strategy to date for commercializing the innovations
A largely self-sufficient strategy/a strategy of vertical integration: Raisio had fabricated stanol ester itself in its own plant using its own technology. Its stanol ester was used only in its own branded margarine, Benecol, which was produced in its own factories and marketed and distributed through its own sales and distribution system.
This strategy enabled Raisio to have control over the technology, reduce transactions costs of market contracts and maintain superior coordination through the value chain, but it failed in meeting market demand home and broad due to limited production capacity and limited supply of raw material. Besides the demand, it would take a long time for Benecol to fully market in other countries. That would be risky, as it only had 18- to 24-month lead time over its competitors. It’s impossible to open all markets by acquisition which entails high cost and various management issue. Therefore, the strategy won’t allow Raisio to realize the international launch of Benecol during the lead time, or help it meet the worldwide demand.
3. Assessment of Raisio’s competitive position in January 1997
Supplier power: high. The raw material for producing stanol ester was limited, many companies similar to its current supplier hadn’t had the system in place to collect the plan sterols. Buyer power: low. Because of the new technology’s significant effect on reducing cholesterol, Benecol margarine was priced about six times the price of regular margarine, even so the demand was still very high.
Threat of entry: low within 18- to 24-month. The patent bought them that much lead time over its competitors.
Substitutes: high. A number of competing products were available for reducing cholesterol such as naturally available plant sterols. The possibility of using plant sterols as a food additive increased the risk of being substituted. A growing array of cholesterol-reducing drugs was available on the market. There are also a number of natural food products that have the effect of reducing cholesterol within the blood, including fish oil, garlic, flax seed, dietary fiber, policosanol, and guggulipid.
Industry rivalry: temporarily low. It maintained leading position for Benecol because of the innovation. But the product was single, not diversified. The profit margin was very low, only 4.1%. In short, Raisio had a favorable competitive advantage over its competitors, but would only within the lead time if it couldn’t figure out a suitable strategy and feasible plan. 4. The alternative strategies available to Raisio in 1997
(1) To establish partnership with Johnson & Johnson (J&J) to utilize its extensive experience worldwide.
According to the case, it would be exclusive partnership. Considering J&J’s experience which was exactly Raisio needs, the partnership was feasible for its international launch of Benecol.
(2) To focus on its key ingredient, stanol ester and exploit its innovation more widely so as to produce and supply to a number of suppliers and food processors.
As the key competence of Benecol margarine was the key ingredient, the innovation would diversify the usage of stanol ester in more kinds of drinks and food so as to increase Raisio’s competence. However, I won’t suggest Raision to provide the ingredient to more suppliers and food processor, as it would weaken Benecol products’ uniqueness.
(3) To keep its production of stanol ester in-house or license this technology.
As mentioned above, this technology was the key to its success. I wouldn’t recommend license it out. 5.
Based on the analysis and assessment, firstly I would recommend Benecol product be diversified and defined as functional food. The diversification and raw material shortage would require more R&D. This not only reflected Raisio’s technical ingenuity, but also was key to its success. In 1996, R&D only accounted for 2.2% of its revenue. Through R&D, Raisio would probably find more ways to produce stanol ester. It would also be beneficial if Raisio started nourish more suppliers of plant stenols to increase its bargaining power as well as get stable supply of the raw material. Secondly, I would suggest Raisio establish exclusive partnership with J&J to produce, market and distribute diversified products with the new innovation in other markets other than Finland, the nearby markets and the markets which already had joint ventures. Two important provision should include (1) all products should be under the brand of Benecol to ensure the increase of the brand value.
Once Raisio wants to buy it back, the established brand would be value-added for Raisio, like what many international companies have done to enter a new market with complicated regulations and laws, different marketing channels and culture, etc.; (2) J&J involves Rasio in the value chain of the brand to enable Raisio gain experience/learning opportunity from J&J. The strategy would solve the problems of production capacity, lack of marketing and distribution experience in many countries, and would help avoid complicated regulatory issues. (3) Regarding different regulations and market conditions, the marketing plan should be promoted progressively. Marketing stage 1: The markets for the first stage should include the US and European Union which were the biggest potential markets for Benecol products and the regulation situation of the two markets were relatively clear and efficient. In US, it allowed the product to gain approval as a dietary supplement.
It was the simplest path which only took 60 days file notification with supporting evidence before commercial rollout. In European Union, it was possible to go through fast-track approval, as it had already been marketed in Finland. Marketing stage 2: J&J would probably start bring the products into the markets with huge potential simultaneously, as it would take a longer time to gain approval. Last but not least, based on the revenue breakdown in 1997, Raisio would allocate more recourses to the business unit of animal feeds, as the markets for animal feeds would be promising. For chemicals, though it represented 34% of its total sales, I would suggest Raisio take it as byproduct of its R&D. No detailed recommendation for those two units would be made due to limited information.